Legislation has done little to curb practice of payday lending
A year ago, the city had 12 payday lenders.
Today, there are technically 10 after one closed its Milton Avenue office and another, while still in business, did not upgrade its license to reflect itself as a payday lender.
Lawmakers and others warned when the payday lending legislation was passed last year that the industry would adapt.
“They’re finding ways to manipulate and circumvent the intent and spirit of the law, but the impact is just as bad,” said state Rep. Gordon Hintz, D-Oshkosh.
“If there’s money to be made by screwing people, they will find a way to do it.”
Hintz has been a strong proponent of crackdowns on the payday loan industry. He advocates reigning in industry abuses, creating incentives for better alternatives and continuing to invest in financial literacy.
Hintz was an author of last year’s Assembly version of the bill, and he supports new legislation to cap interest rates at 36 percent, a provision dropped from last year’s bill.
Such a cap, he said, would make the state’s law nearly loophole-proof.
The law now limits the number of loans borrowers can carry and limits amounts to a maximum of either $1,500 or 35 percent of gross monthly income. It requires special licenses of payday lenders, governs where they can be located and creates a database to track borrowers and their payday loan activity.
Payday loans generally are small, short-term loans with high interest rates that amount to advances on a borrower’s next paycheck. Lenders typically charge $20 for every $100 borrowed.
Problems arise, however, when the borrower is unable to pay off the loan and extends it. If they are late in paying back the loan, the interest charges balloon, sometimes into the triple digits.
In Janesville, the closure of BudgetLine Cash Advance at 1247 Milton Ave. created a gap on the street that is home to seven of the city’s 10 payday lenders.
A new store that has all the curb appeal of a payday lender has filled the Milton Avenue slot.
But MoneyMax, which opened in March at 1231 Milton Ave., is not a payday lender, and its business model is one that distances itself from the new state law.
MoneyMax is not defined as a payday lender under the new state law that went into effect Jan. 1 after months of contentious debate in Madison.
Nine of the 10 official payday lenders in Janesville are licensed under state statutes 138.09 and 138.14. LoanMax, 2403 Milton Ave., is licensed under just 138.14.
Checks for Cash, 1817 E. Milwaukee St., is licensed under 138.09, which means it is making loans that carry interest rates above 18 percent.
In signing Wisconsin Act 405 into law, Doyle used his line-item veto power to eliminate vehicle title loans. After he crossed out several hundred words in the section of the act pertaining to title loans, all that remained was “No licensed lender may make a title loan.”
That probably confuses Milton Avenue motorists who notice MoneyMax’s signs proclaiming “Cash loans on car titles.”
Doyle’s resulting eight-word sentence includes one word—“licensed”—that allows MoneyMax and similar businesses to operate in the state.
MoneyMax is not licensed under statutes 138.09 or 138.14, which govern lenders and companies that make payday loans, said Michael Mach, administrator of the state’s division of banking.
“If they are licensed under neither, then they are making loans with interest rates under 18 percent that are secured by car titles,” Mach said. “…We’ve had other inquiries about these types of places.”
MoneyMax doesn’t need a license, as long as its interest rates stay below 18 percent, Mach said.
And because it is not licensed under 138.14—the newest payday lending statute—it could have opened anywhere.
Under the new law, a payday lender may not operate unless it receives a permit from the city council.
The city council can’t issue the permit if the new business is within 1,500 feet of another payday lender or within 150 feet of an area zoned for residential use.
Unaware of the new payday lending regulations when MoneyMax opened, city staff apparently lucked out when it granted the business an occupancy permit for 1231 Milton Ave.
While it’s close, MoneyMax appears to be at least 1,500 feet from Speedy Loan, 1523 Milton Ave.
It’s easily within 150 feet of residences directly across Milton Avenue, but because it is not licensed as a payday lender, the location rules don’t apply.
Doyle’s ban on auto title loans from licensed lenders creates an interesting situation on the city’s west side, where Wisconsin Auto Title Loans does business at 1616 W. Court St. It is licensed under both 138.09 and 138.14, which means it is a licensed payday lender restricted by Doyle’s ban on title loans.
Mach said the company’s name and sign are OK, as long as it does not make title loans.
Hintz said the debate about payday lending has put the issue in front of the public.
“It’s still early in the life of this law,” he said. “We spent a lot of time, effort and political clout on this last year and took an issue that not a lot of people talked about and brought it to the forefront.
“There wasn’t a candidate last fall who wasn’t asked about it at one time or another,” Hintz said. “It’s not ideal legislation, yet, but we’ve raised the political discourse and tightened the legislative focus.”
Can payday lending legislation be toughened?
State Rep. Gordon Hintz has several pictures on a wall of his Oshkosh office.
Most are of notable landmarks and events from his district, which is well known for its annual EAA AirVenture.
But one of the pictures is a daily reminder of why he’s a staunch advocate of cracking down on Wisconsin’s payday lending industry.
It’s a photo of an Edward Jones Investments office with a payday lending operation next door.
“If you’ve got money and want to make more, walk into Edward Jones,” Hintz said. “If you don’t have money and want to get screwed, walk into the check-cashing place.”
Hintz is supporting new legislation intended to cap at 36 percent the interest rates that payday lenders can charge.
A similar proposal died last year when lawmakers ultimately passed a new payday lending bill that limits the number of loans borrowers can carry and limits loans to a maximum of either $1,500 or 35 percent of gross monthly income. It also requires special licenses of payday lenders, governs where they can be located and creates a database to track payday loan activity.
Politics, lobbyists and hundreds of thousands of dollars helped soften last year’s legislation that was intended to regulate an industry that consumer groups say feeds on the economically vulnerable.
“When companies can charge 500 (percent) to 600 percent interest, something’s wrong,” said state Rep. Evan Wynn, R-Whitewater. “Most people taking these loans live paycheck to paycheck, and then, when an engine goes out or something else happens, they can’t pay it off, and things get way out of control.”
Wynn and Sen. Glenn Grothman, R-West Bend, are pushing the new bill that would cap the interest rate for payday loans at 36 percent. It stands a much better chance this year as Republicans control the state Assembly, Senate and governor’s office.
“There was a good payday loan bill last year, but it left one thing out: a cap on interest rates,” Wynn said. “It’s a consumer protection issue for me.
“From my time in the military, I’ve seen it devastate too many young military families and drive people deeper into poverty.”
Wynn said he sought the support of Hintz, who is a co-sponsor of the new bill. He also talked with the Legislative Fiscal Bureau, bankers, lawyers, consumer groups and anyone else interested in the issue.
Wisconsin’s payday lending industry has blossomed since 1995, when lawmaker repealed a rate cap of 18 percent so creditors could compete nationally. At the time, there were 17 such lenders in the state; today there are several hundred.
Wynn and Hintz expect the industry will fight the interest rate cap from becoming law.
“The industry always seem to find loopholes in whatever we do,” Hintz said. “I’m sure this issue will keep coming up again and again.
“There is no such thing as perfect legislation, but we’ll have to see how much stomach the Legislature has to go through it again this year.”